Energy Capital: Will Wall Street Be There For Energy Financings Next Year? Raymond James Energy Group Energy Capital: Will Wall Street Be There For Energy Financings Next Year? Raymond James Energy Group Marshall Adkins Raymond James Oilservice Group (800) June 2004

Will “The Street” Be There?  2003 was the biggest equity offering year in two decades  The equity window is still open  M&A activity (mostly sales by majors) is driving capital demand  Oil & gas prices will dictate future capital availability 2

E&P High Yield Offerings Driven by Rates 3

2003 Record For E&P Equity Offerings 4

2003 E&P Equity Offering Performance Has Been Excellent 5

E&P Equity Capital Raised vs. Average Natural Gas Prices 6

E&P Equity Capital Raised vs. Average Oil Prices 7

Energy Prices Will Drive Wall Street Capital Availability  Long-term secular up-trend is intact  Look for a late summer gas price squeeze  Oil fundamentals are solid –More upside than downside  Is this a 1970’s re-run? 8

We Are In A Long-Term Secular Upswing (Higher Highs, Higher Lows) 9

U.S. Rig Fleet Size Shows Long-Term Secular Moves 10

Drilling Success Rates Are Up 11

New Drilling Techniques Are Here To Stay 12

New Areas Are Now Accessible 13

But, We Are Drilling Deeper 14

Searching For Smaller Reserves 15

Which is Driving Decline Rates Higher 16

How Will More Rigs Affect Production? 17

Today’s U.S. Gas Production Is Replay Of 1970’s Oil Production 18

Q1 Natural Gas Production Still Down 19

The Gas Market Is Working! (Approaching 4 Bcf/day less gas vs. last year) 20

What Happens This Summer? 2003 Injections 2,450 Bcf - Supply Down 2% (1 Bcf/day) Bcf - Economy/Ind. Demand (1 Bcf/day) Bcf - Weather* ??? (Normal) 0 Bcf - Fuel Switching ??? 0 Bcf - Electric Consumption ??? 0 Bcf 2004 Injections 2,020 Bcf April Beginning Storage 1,000 Bcf October Ending Storage 3,020 Bcf * Weather impact: +/- 1/2 Bcf/day per 1% change in temperature 21

U.S. Gas Conclusion 22  Falling supply will continue to drive prices higher  Look for a mid-summer squeeze  Oil prices will set gas price range –Divide oil price by 5 ½ for the midpoint –Gas prices should fluctuate $1/Mcf around the midpoint  RJ estimate: 2004 ~ $5.92/Mcf 2005 ~ $6.00/Mcf  These estimates will probably prove too low

Oil Market Continues To Tighten, Big Wildcards 23  Oil Inventories suggest low $30 oil prices  Nigeria/Venezuela/OPEC/Middle East wild cards  Missing Barrels: Part 2 –Larger oil demand (China, Global Economy) –Smaller oil supply (Venezuela, Russia)  Dollar weakening is having an impact  OPEC resolve is stronger at sub $30 oil

Our Oil Model Suggests Low $30 Oil Prices 24

Chinese Oil Demand Is Going Insane! 25

Russian Oil Production Growth Slows 26

OPEC Excess Capacity Is Tightening! 27

No Room For Error 28

Oil Conclusion  IEA miss-calculations have confused the market  Implied oil demand growth is huge!  Russian supply growth should slow in 2005  Oil markets should tighten in late 2004  When will we hit the wall?  OPEC wants $30+ oil prices  RJ estimates: 2004 ~ $34.36/Bbl2005 ~ $33.00/Bbl 29

Conclusion 30  2003 was an outstanding year for energy equity offerings  “Window” is open for energy equity deals  Strong oil and gas fundamentals should allow energy access to Wall Street’s capital

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